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    Government plans to set up bad bank structure by June 30

    finance | IST

    Government plans to set up bad bank structure by June 30

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    CNBC-TV18 has picked from sources close to the matter that the plan is to set up the National Asset Reconstruction Company Ltd (NARCL) which has already been spoken about a lot along with the India Debt Management Company. Watch the accompanying video of CNBC-TV18’s Sapna Das for more details.

    After the budget announcement on setting up a bad bank-like structure for faster resolution of NPA, the government may be ready with the blueprint. 

    As has been proposed, NARCL will take over the bad loans from banks by paying 15 percent in cash and 85 percent as Security Receipts. The security receipts will be backed by a government guarantee, which is likely to ensure the face value of the SRs. 

    Sources reveal, as per estimates of the Indian Banks Association which have been broadly accepted by the government, the size of bad loans is Rs 2 lakh crore while the average cost of acquisition of these NPAs for the NARCL works out to 18 percent, which is Rs 36,000 crore. 85 percent of this acquisition cost will be covered by a govt guarantee and thereby the quantum of govt guarantee settles at Rs 30,600 crore. 

    However, in the first phase , only NPAs that are fully provisioned, are likely to be transferred to the NARCL, while NPAs with lower provisioning are likely to follow later, according to sources. 

    Sources also say the SRs are likely to have a 5 year tenure and will be tradable. 

    CNBC-TV18 has learnt, alongside the operationalisation of NARCL, the government also plans to set up a Debt Management Company which will be the operational entity for resolution.  

    While the NARCL will have 51 percent shareholding from the public sector, private sector banks could hold a majority stake in the Debt Management Company. This entity is likely to be tasked with improving the value of the NPAs, sources say. 

    As part of the policy process, Cabinet approval is required for these proposals which sources say, is likely soon.  

    Watch the accompanying video of CNBC-TV18’s Sapna Das for more details.
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